Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
qualified investments for DPSPs
Reasons FOR POSITION TAKEN:
none on topic
XXXXXXXXXX (613) 957-8953
November 30, 1993
Re: Qualified Investments for Deferred
Profit Sharing Plans (DPSPs)
This is in reply to your letter of November 1, 1993, wherein you asked if shares must have a dividend payment of four percent for the previous five years in order to be held by DPSPs.
Shares which qualify as investments for a DPSP include:
shares listed on a prescribed stock exchange in Canada;
shares listed on a prescribed stock exchange in a country other than Canada;
shares of a corporation that was a registered investment for a DPSP which, in general, means shares of registered mutual fund corporations;
shares of a "public corporation" as defined in the Income Tax Act, (other than a share of a mortgage investment corporation which may otherwise qualify under 1 above or 5 below);
shares of a mortgage investment corporation that does not itself hold at any time in a year any indebtedness or mortgage of a person who is, or is not at "arms length" with, an annuitant, beneficiary or employer under the DPSP;
shares of a société d'entraide économique or credit union;
which are not registered investments;
which were qualified investments for DPSPs at the end of 1980;
which have been held by the DPSP on December 31 1980 and continuously thereafter; and
would have continued to be a qualified investment since December 1980 if the provisions at that time continued in force; and
certain "equity shares" as described below.
Equity shares are defined in the Income Tax Act (the "Act") at section 204. In simplified terms, an equity share is generally a common share of a corporation having certain specific dividend and surplus participation rights. The definition excludes preferred shares which are "non-participating shares" as defined in the section and "excluded shares" which are also defined in the section as shares of private corporations where the shares that would otherwise be equity shares make up less than half of the corporations paid up capital that is represented by participating shares.
Equity shares of a corporation may only be held by a DPSP if:
payments have been made into the DPSP trust for the benefit of the DPSP beneficiaries before the date of acquisition of the shares; and
the shares are of a class in respect of which:
there is no restriction on their transfer; and
the corporation has paid dividends of not less than 4% of the cost of the shares to the trust on each share of the class; or
the corporation had earnings attributable to the shares of the class equal to 4% of the cost of the shares to the DPSP multiplied by the total number of shares of the class
in the corporation's last taxation year before the date of acquisition by the DPSP and in at least four of the five years comprising a period that ended less than 12 months prior to the date of acquisition of the shares by the DPSP.
The definition of Equity shares and the conditions under which they can be acquired by a DPSP trust are complex and the above comments are only intended to clarify them in general terms. The actual provisions of the relevant sections of the Act should be referred to before any investment in equity shares is made by a DPSP.
We trust these comments are satisfactory to you.
Financial Industries Division
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